Stock Picks: Pfizer’s plan to cut costs looks like a winner

Ian Shaffer, Special to The Gazette06.17.2013

Pfizer has pledged to cut costs and shed non-core businesses, and is offering its shareholders the option to convert its shares into those of its animal health-care subsidiary, Zoetis, which went public in February. Above, Pfizer products are displayed at the Pfizer plant in Montreal.

This week, the Galliant team and I present our fourth Quick Fire instalment, in which we give our thoughts on companies written about in previous columns and those our readers have most asked us about. If you have an investment idea you would like us to discuss in the future, please email us.

Pfizer (NYSE: PFE) is a pharmaceuticals giant, and has now become one of our core holdings as it has pledged to cut costs and shed non-core businesses. Pfizer is offering its shareholders the option to convert its shares into those of its animal health-care subsidiary, Zoetis (NYSE: ZTS), which went public in February. We hope to convert the majority of our Pfizer stake into Zoetis shares, which are being offered at a 7.5-per-cent discount to the stock’s publicly-traded price. After this event, we will look to add to our remaining Pfizer position as we like the company’s combination of a strong share buyback program, large dividend, continued cost reductions and possible spinoffs.

Tim Hortons (TSX/NYSE: THI) is a quick-service restaurant, known primarily for its doughnuts and coffee. The Ontario-based company has expanded beyond Canada, and today 808 of its 4,288 restaurants are in the U.S. Although the company has a loyal customer base, the stock is fully priced as it trades at a multiple of 16 times 2014 earnings estimates, while the company is expected to grow profits by only 12 per cent annually over the next five years. We would wait for a better entry point before initiating a position.

Viacom (NASDAQ: VIA/VIAB) is a media entertainment company that owns Paramount Pictures, as well as Nickelodeon, MTV and Comedy Central. Its stock has performed exceptionally well this year, as the value of its vast content library has increased with the proliferation of tablets and smartphones. The company recently announced a multi-year deal with Amazon.com (NASDAQ: AMZN) to license its popular children’s shows, including Dora the Explorer. Viacom has also repurchased approximately 17 per cent of its shares outstanding over the last two years. The company’s strong buyback and elite media content make Viacom an intriguing investment.

Procter & Gamble (NYSE: PG) is the owner of Tide, Gillette, Duracell and many other popular brands, and has recently undergone a significant executive shakeup. Former CEO A.G. Lafley has recently returned to the helm to lead an overhaul of the company’s global operations. Lafley is a bonafide winner and we expect him to deliver a clear growth strategy, as well as possibly sell and/or spin off non-core assets. With a strong dividend of 3.1 per cent, we are willing to wait for these events to unfold.

ProShares Short 20+ Year Treasury (ARCA: TBF) is an exchange-traded fund (ETF) that increases when interest rates rise and bond prices fall. The ETF is inversely correlated to the Barclays US 20+ Year Treasury Bond Index, which owns long-term U.S. government treasury bonds. Many investors believe that interest rates are set to rise as the Federal Reserve reduces its bond purchases and slows down its quantitative easing program, and this ETF should benefit if these events occur.

Tesla Motors (NASDAQ: TSLA) designs, manufactures and sells electric cars. The company’s founder and CEO, Elon Musk, was also co-founder of online-payment company PayPal, and is an entrepreneur who is well-known for his forward-thinking. Skeptical investors who bet against the stock believed the company would experience cost overruns because of delays in the delivery of its new vehicles. Pessimists have been proven wrong thus far, as the stock has powered higher by 196 per cent year-to-date and many short sellers have scrambled to cover their positions. We are concerned about the company’s elevated valuation at these levels and are currently sitting on the sidelines.

Dean Foods (NYSE: DF) recently spun off shares of its WhiteWave Foods (NYSE: WWAV/WWAV-B) subsidiary to its shareholders and into a separately-traded public company. As a result, Dean is now a pure-play in the dairy and beverage sector and may be an acquisition target by a larger player. We have sold our WhiteWave shares and are accumulating more shares of Dean at these levels.

Portfolio update: We are exiting our position in ADT (NYSE: ADT).

Full disclosure: We own shares of Dean Foods, Pfizer, Procter & Gamble and ProShares Short 20+ Year Treasury ETF in the Galliant portfolios.

Ian Shaffer is a portfolio manager and the president & CEO of Galliant Capital Management, which manages investment funds and individual client accounts. Ian can be reached by phone at 514-788-5544 or by email atishaffer@galliantcapital.com

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